Achieving Optimal Estate Planning Through Portability
One significant advantage used in estate planning is portability. Under U.S. federal estate tax law, portability allows for the transfer to a surviving spouse of any unused portion of a deceased spouse’s federal estate tax exclusion.
Prior to the introduction of portability in 2010, any unused estate tax exclusion was forfeited upon the death of a spouse. However, with a portability election, a surviving spouse can potentially double their own exclusion by utilizing the unused portion of their deceased spouse’s exclusion. This strategy can significantly reduce or potentially eliminate federal estate tax liability. Additionally, by utilizing portability, couples can simplify their overall tax planning strategy while maximizing use of estate tax exemptions. Portability helps minimize estate tax and preserve wealth for heirs and beneficiaries, ensuring that a larger portion of an estate is passed on.
The exclusion for 2025 is $13,990,000 per individual, resulting in a total exclusion of $27,980,000 for married couples. These amounts were scheduled to decrease to approximately $7,000,000 per individual in 2026, but earlier this month, “The One, Big, Beautiful Bill” was passed by the House and sent on to the Senate, which provides a framework for 2025 tax reform and includes provisions to extend the increased estate tax exemptions. The Bill aims to make these higher exemptions permanent moving forward, increasing them to $15,000,000 per individual and $30,000,000 for couples starting in 2026.
An example of how a portability election can be advantageous is reflected in the below scenario.
- Henry and Ellen are married. Henry’s assets total $7 million, and Ellen’s assets total $25 million. Henry passes away in 2025, having made no lifetime gifts and leaving all $7 million to their children. In 2025, the exclusion is $13,990,000 per individual, leaving Henry with unused exclusion of $6,990,000 ($13,990,000 exemption – $7,000,000 given to children). Assuming Ellen has made no lifetime gifts and electing portability, she would now have a total exemption of $20,980,000 ($13,990,000 own exemption + $6,990,000 unused exemption from Henry) to apply to transfers made during their lifetime or at her death.
Portability can be an effective tool as part of an overall tax planning strategy. We encourage you to reach out to your tax advisor at Withum with any questions.
Authors: Maria Carvalho, MBA | [email protected] and Anthony Pagano, CPA | [email protected]